They constantly test their new businesses’ products, services, and business models to spot problems early, while there’s still time to make midcourse corrections. Just as important, successful business builders understand how markets and customers might be changing. This approach avoids bringing activity to a halt amid endless rounds of approvals. We have found, for example, that successful business builders put in place “learning buffers”-a budget cushion permitting an effective response to the uncertainties of launching any new business. Although executives cannot necessarily predict which challenges their companies will face, they can prepare for them. In business, after all, just about the only certainty is that the future is uncertain and will bring unforeseen challenges that are difficult to plan for.īut disruption isn’t the real problem, which is the inability of so many new businesses to adapt and pivot effectively when circumstances change or they get information that challenges their previous assumptions. In all those we surveyed, companies give business building pride of place on the corporate agenda (Exhibits 2 and 3).Ĭommenting on the business building they were most familiar with, 30 percent of failing businesses cited unexpected disruptions in the market and business environment as the biggest reason these news businesses fell short of expectations. The shift to business building isn’t confined to a few sectors or regions. And these companies are putting their money where their priorities are, allocating, on average, one-third of their organic-growth capital to business building-more than twice as much as the laggards do. No wonder so many executives ranked business building as a top-three priority for 2020 (Exhibit 1). Only 58 percent of the companies that prioritized different strategies did. Some 74 percent of companies that chose business building as their main strategy grew at rates above the average of their industries. Our research examined four different approaches to organic growth: business building investments in existing products, services, or commercial activities that had generated organic growth in the past optimizing core commercial capabilities (such as sales, marketing, and pricing) to improve performance and creating new products or services in which a company had an existing footprint. We studied four different approaches to organic growth and found that business building was the most effective among them. Moreover, organic growth often creates greater excess returns to shareholders than dealmaking does, even during more normal times. And while M&A remains an essential part of the growth playbook, P/E multiples remain high, and acquisitions can be expensive. Replacing lost revenues, of course, requires finding new forms of growth. In many industries, the pandemic has rewritten rules and upended assumptions, all while diminishing-or threatening to diminish-existing revenue streams. The COVID-19 crisis has accelerated and intensified that trend. Please email us at: before the pandemic, our own experience indicated that business building had become more important for incumbent companies looking to use innovative business models, products, and services to meet the threats and opportunities of a digitizing world.
If you would like information about this content we will be happy to work with you. We strive to provide individuals with disabilities equal access to our website. That would boost organic growth and improve the prospects of companies looking to jump into the top tier of performance. As more companies adopt these successful practices, a new wave of innovation could arise from not just entrepreneurial efforts but also intrapreneurial ones. The experience of these companies clarifies the winning approach to launching and scaling new businesses.
2Īs a proxy for the success rates of high-potential start-ups, we considered the share of start-ups admitted to a leading incubator that went on to reach a Series C investment round or beyond.
We also found that a small set of companies enjoy success rates two times higher than those of high-potential start-ups (24 percent versus 8, respectively). The survey revealed that an impressive 52 percent of executives consider business building a top-three (or higher) priority for growth. So far as we know, this was the first at-scale research to explore corporate business building. To shed light on the differences between outperformers and also-rans, our survey included more than 800 company executives across a range of industries, sectors, and geographies. McKinsey associate partner Upasana Unni describes key insights from this article.